Types of Errors in the Books of Accounts


The errors in the books of accounts may be of two types:

(1) Errors not affecting agreement of trial balance.

(2) Errors affecting agreement of trial balance.

(1) Errors not affecting agreement of Trial Balance – Types and Examples:

“Errors not affecting agreement of trial balance”, are further classified into the following types:

(i) Error of Omission: This occurs when a transaction is completely omitted from the accounting records.

(ii) Error of principle: This arises when recording of a transaction is not in full compliance of the fundamental accounting principles. This occurs when an item of a capital nature is recorded as a revenue item and vice versa.

For example, a machine purchased for $10000 has been debited to purchases account.

(iii) Errors of Commission: This is similar to the error of principle and arises where one half of a transaction has been entered in wrong account but to the correct type of account. For instance a capital item is recorded as another capital item.

For example, $400 paid to P. Collins was debited to the account of J. Collins.

(iv) Complete Reversal of Entry: This occurs where the both debit and credit aspects are recorded on their correct sides but the same wrong amount is entered on both sides of the entry.

For example, Rent paid $300 wrongly recorded as rent received.

(v) Error of Original Entry: This occurs where the both debit and credit aspects are recorded on their correct sides but the same wrong amount is entered on both sides of the entry.

For example, return inwards from P.Wedge $639 was recorded in the accounts as $369.

Solved Example or Problem:

Jim Burger started up a catering business on 1 July 2020. On 30 June 2021 Jim produced a trial balance for the business and found that though two sides of the trial balance arithmetically agree but there are some mistakes in accounting records. After investigation the following errors were discovered:

(i) Bank charges for June 2021 of $150 had been omitted altogether.

(ii) Sales of goods on credit of $75 to G Gee had been posted in error to B Gee’s account.

(iii) $125 repairs to the delivery vehicle had been debited to the motor vehicles account.

(iv) Purchases of $623 from Philips a supplier had been entered in the sales book as $632.

(v) Goods purchased from Jones for $425 recorded as $245.

Required:

(a) Prepare journal entries to correct each of the above.

(b) List down the name of error illustrated in each of the above errors.

Solution (a):

Notes:

(i) Recording of bank charges involves increase in bank charges expense (debit) and as payment is made to bank so will result in credit entry to bank account.

(ii) Though correct credit entry had been made in sales account however account of B. Gee is credited and G. Gee’s (original trade receivable) account is debited to show amount receivable from him.

(iii) A revenue expense wrongly treated as capital expense (non-current asset). It correction will invole increase in (debiting to) income statement expense and reduction in (crediting to) non-current asset account.

(iv) Purchases were omitted so now should be debited whereas wrong credit to sales should also be corrected by debiting the sales account. On the other hand Philips account should be credited by using total of these values.

(v) Purchases from jones were recorded as $245 instead of $425 so another entry of $180 should be passed to correct the mistake.

Solution (b):

(i) Error of ommission

(ii) Error of commission

(iii) Error of principle

(iv) Complete reversal of entries

(v) Error of original entry 

(2) Errors affecting agreement of Trial Balance – Types and Examples:

There are many errors which do affect the agreement of the trial balance. They often occur where one side of the transaction is correctly dealt with but the other is not. The result is that one column of the trial balance will be smaller than the other.

Typical exaples of errors of this type are as follows:

(i) Calculating a total incorrectly in a book of original entry.

(ii) Calculating the balance incorrectly on a ledger account.

(iii) Making a debit entry without a corresponding credit entry or vise versa.

(iv) Entirely omitting a ledger account balance from the trial balance.

(v) Listing a debit balance as a credit balance (or vice versa).

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